Brian Pearson (Valuation Advisors LLC), developer of the Valuation Advisors' Lack of Marketability Discount Study, updated listeners on his pre-IPO database last week in a BVR webinar. The Valuation Advisors DLOM Study database, which currently has over 4,300 transactions, is a valuation tool that compares the initial public offering stock price to pre-IPO common stock, common stock option and convertible preferred stock (CPS) prices. Pearson and his team recently added 316 CPS transactions from 1999 “near the pentacle of the IPO market,” bringing the total to 386.
“What's interesting about running discounts for convertible preferred stock is those discounts arguably should be lower over time than stock if they're issued at the same point in time. In other words, if you looked at a transaction issued 12 months before an IPO date – one being stock, one being convertible preferred stock – the convertible preferred stock transaction should reflect a lower discount, not a higher discount,” Pearson remarked.